在经济增长放缓和贸 易战中幸存：赢家和输家.docx

Evidence Lab survey result highlights1. Winter of corporate earnings is deepeningRevenue outlook: weaker overall and more divergentRespondents were marginally more pessimistic about future sales revenue. Polarization continues to spread: a higher number of respondents expected sharp revenue increases (13% versus 11% in the fourth survey) and significantly decreased revenues (12% versus 9% previously). Strong sectors: financials held the most positive outlook on revenue by far. Weak sectors: staples/education/industrials/materials posted the highest revenue outlook readings for "stay the same", "somewhat decrease" and "significantly decrease',.Figure 2: Sales outlook by sector forH219Figure 1: Sales outlook (Jul 2017-Sep 2019) Significantly increase Stay the same Significantly decreaseSomewhat increaseSomewhat decreaseTelecommunication Services FinancialsReal Estate UtilitiesIT Energy OverallConsumer Discretionary Consumer Staples ConstructionIndustrials EducationHealth Care Materials0% 20% 40% 60% 80% 100% Significantly increaseSomewhat increaseStay the same Somewhat decrease Significantly decreaseSource: UBS Evidence LabSource: UBS Evidence LabFigure 3: Sectors responded with "significant" or "somewhat increase" on sales outlook (Apr 2019 vs Sep 2019)Source: UBS Evidence LabEducation, staples and materials offered high readings for "significant decrease" or "somewhat decrease* in capex. However, almost half (48%) of the companies negatively affected by the US- China trade war had cut their domestic capex in response to the trade war in the Sep 2019 survey; higher than the 38% in the April survey.Figure 24: Expected changes in capex (Jul 2017-Sep 2019)Sep2019Apr 2019Aug 2018Jan 2018July 201714%56%56%20%8%9%10%53%60%55%24%26%18% 113%3%13%1%21%8%0% 20% 40% 60% 80% 100% Significantly increase Somewhat increase Stay the same Somewhat decrease Significantly decreaseFigure 25: Expected changes in capex in H219 by sector Significantly increase Somewhat increase Stay the same Somewhat decrease Significantly decreaseSource: UBS Evidence LabSource: UBS Evidence LabSource: UBS Evidence LabFigure 26: Sectors that expect "significant'1 or "somewhat increase" in capex (Apr 2019 vs Sep 2019)Figure 26: Sectors that expect "significant'1 or "somewhat increase" in capex (Apr 2019 vs Sep 2019)Source: UBS Evidence LabNot surprisingly, R&D and upgrade of equipment and machinery ranked the top two destinations for higher capex/investments, underlying corporate awareness for increased learning and innovation to help lift their corecompetencies and commercial viability under the challenging macro environment currently.Figure 27: R&D, the most-preferred destination for higher capex/investments (Jul 2017-Sep 2019)machinerycapitalJuly2017 «Jan2018 «Aug 2018 aApr 2019 «Sep 2019Source: UBS Evidence LabBy sector, materials, energy and industrials posted high readings for allocating investments to R&D. By sector, consumer staples, consumer discretionary and industrials posted high readings for upgrading equipment and machinery. It appears to us that these are the investment years for industrials and materials, while revenue and margins are moving from weak to weaker. But post such tough patches, we think some participants in these two sectors will outperform when the corporate profit cycle's spring season returns.Figure 28: Intent to allocate funds for R&D in H2190% 20% 40% 60% 80% 100% Rank 1 Rank 2 Rank 3 Rank 4 Rank 5 Rank 6Rank 7 «Rank8 Not Ranked Can't sayFigure 29: Intent to fund equipment upgrades inH219 Rank 1 Rank 2 Rank 3 Rank 4Rank 5 Rank 6Rank 7 Rank8Not Ranked Can't saySource: UBS Evidence LabSource: UBS Evidence LabA-share capex growth was stable in H119 with upstream sectors outperforming consumer goods sectors. Our analysts believe the demand for industrial automation, especially in the form of orders from non-exporters, may have bottomed assuming the higher capex intentions shown in the survey. Although it is still a little bit too early to call a turnaround, we believe that is a possibility.Figure 30: A-share capex growth by sector (on a YTD basis)Q114 Q314 Q115 Q315 Q116 Q316 Q117 Q317 Q118 Q318 Q119A-shrexcL financialsUpstream sectors Consumer goodsSource: Wind, UBS estimatesWhere to cut: T&E, non-core projects, and sales/advertising/distributionCutting travel & entertainment (T&E), cutting non-core investment projects, and reducing costs on sales, advertising and distribution ranked as the top three ways among respondents for cutting costs. In fact, our analysts have observed faster- and tighter-than-expected cost controls across industries in H119 earnings results (see report).Figure 31: Expected ways to cut costs in the next six months, September 2019 surveySource: UBS Evidence LabWhere not to cut: hiring/payroIl/employee, bonus, and R&DWe observed widespread cost cutting in H119 results (report). In this survey, layoffs, hiring freezes and cutting bonuses were not ranked as preferred areas for cost cutting, somewhat contrary to general global practices. In fact, cutting R&D was preferred over cutting employee and compensation-related metrics.Staffing challenges eased compared to the previous surveyDifficulties in staffing eased in H119. Real estate stood out as having more challenges in staffing, perhaps an indication of widening sector divergence among the different participants. Materials reported the highest proportion of "much less challenging" staffing difficulties.Figure 32: Difficulty in staffing (Jul 2017-Sep 2019) Much more challenging No change Much less challengingSomewhat more challengingSomewhat less challenging Can't sayFigure 33: Difficulty in staffing by sector in H1190% 20% 40% 60% 80% 100%.Much more challengingSomewhat more challenging No change Much less challengingSomewhat less challenging Can't saySource: UBS Evidence LabSource: UBS Evidence Lab4. Credit access eased, but no relief in cost of creditEased credit access overall, but varying credit needs by sectorAfter the central government called for credit easing (especially for SMEs) in Q119 to support economic growth, a higher number of respondents in the survey reported "much more1, or "somewhat relaxed" credit access. Survey respondents also appeared to expect these relaxed credit conditions to continue during H219.Figure 34: Overall credit access in the past six months (Aug 2018-Sep 2019)Sep2019Apr 2019Aug 20181%0%20% Much more relaxed No change Much more stringent40%60%80%100%Somewhat more relaxed Somewhat more stringent Can't sayFigure 35: Expectation for credit access tightening in the next six months (Aug 2018-Sep 2019)Somewhat likelyExtremely likelySource: UBS Evidence LabSource: UBS Evidence Lab Sectors that anticipate rising credit needs included healthcare and utilities. Sectors reporting stable to falling credit needs included real estate, materials, energy, and consumer staples. A higher number of respondents expected higher credit needs for the second half. Could this indicate a potential bottoming out of capex? While it is still a bit too early to call, we believe this is a possibility.Figure 36: Expected changes in credit needs (Jul 2017-Sep 2019)Sep 2019Apr 2019Aug 2018Jan 2018July 2017 Significantly increase Somewhat increase Stay the sameSomewhat decreaseFigure 37: Expected changes in credit needs by sector0% 20% 40% 60% 80% 100% Significantly increase Somewhat increase Stay the sameSomewhat decrease Significantly decreas®iCan,t say Significantly decreas®iCan,t saySignificantly decreas®Can't saySource: UBS Evidence LabSource: UBS Evidence LabContrary to general perception, higher credit has not reduced credit costs The general perception is that when the supply of credit increases, its prices (ie, interest rates) will decline. However, based on respondents* feedback, this is not happening at all. A higher number of respondents bore higher credit costs in H119, especially among non-bank financials and small banks that rely on interbank funding, and capital-intensive sectors such as energy, real estate (policy tightening), and utilities.Figure 38: Overall cost of credit in the past six months (Aug 2018-Sep 2019) Significantly increased No change Significantly decreasedSomewhat increasedSomewhat decreased Can't sayFigure 39: Overall cost of credit in the past six months by sector Significantly increased No change Significantly decreasedSource: UBS Evidence LabSomewhat increasedSomewhat decreased Can't saySource: UBS Evidence LabFigure 41: Expected changes in credit costs in H219 by sector Rise sharply Rise modestly:No change Fall modestly Fall sharplySource: UBS Evidence LabFigure 40: Expected changes in credit costs (Aug 2018-Sep 2019)Sep 2019Apr 2019Aug 20180%20%40%60%80%100%Furthermore, a higher number of respondents expect credit costs to rise further in H219. Hence, despite liquidity easing measures (eg, RRR cuts), at the empirical level, there is little evidence that greater supply of liquidity leads to lower lending rates. According to our channel checks, some banks link employees' compensation with their net income growth. This is perhaps another micro level incentive mechanism that goes against lowering interest rates to banks' own borrowers. Rise sharply Rise modestlydMo change Fall modestly Fall sharplySource: UBS Evidence LabDividend payout: some to pay more, others to pay lessEnergy and financials posted the highest readings forintent to raise dividends. Some respondents expected a significant increase in dividends (ie, almost double). This could be related to the government's call for higher dividend payouts among SOEs. Sectors more likely to cut dividends: education, consumer staples, industrials and construction.Figure 42: Expected change in dividends (Jul 2017-Sep 2019)12%38%25%21% 3%6%47%25%16%40/j7%l43%31 %.16%2,8%l43%31%.16% 2%6%47%30%14%2<|Sep2019Apr 2019Aug 2018Jan 2018July 2017Figure 43: Expected change in dividends in H219 by sector0%20%40%Significantly increase Stay the sameSignificantly decrease60%80%100%Somewhat increaseSomewhat decrease Can't say0% 20% 40% 60% 80% 100% Significantly increase Somewhat increase Stay the sameSomewhat decreaseSignificantly decreasaiCan't saySource: UBS Evidence LabSource: UBS Evidence Lab Dividend payout ratios for A-share and HK-listed Chinese SOEs were 35% and 41% in 2018, respectively. SOE financials listed in HK only caught up with the non-financial SOEs in terms of dividend payout ratios in 2018. For A-share listed financial SOEs, they are yet to catch up with non-financials in terms of payout ratios.Figure 44: Payout ratio for A-share SOEs55%50%45%40%35%55%30% _25%20%15%10% All SOEs Financials Non-financials15%Figure 45: Payout ratio for HK-listed ChineseSOEs50%45%40%35%30%25%20%10% 20142015201620172018AIISOEs Financials Non-financialsSource: Wind, UBS estimatesSource: Wind, UBS estimatesMacro implicationsKey takeaways: soft profits, mixed capex intentions, resilient employmentThe survey showed that fewer respondents expected an increase in new export orders, while more saw lower profit margins ahead. We expect overall corporate revenue and profits to decelerate in the coming year. That said, more respondents anticipated easier credit access and overall capex intentions actually improved. While capex intentions of manufacturing exporters and domestic cyclical sectors weakened, those in services sectors including financials, healthcare and telecom increased notably. We expect a modest rebound of credit growth, weaker manufacturing investment as trade war uncertainty persists, but expect infrastructure and services investment to rebound or hold up next year. Consistent with macro level data, not many companies have cut or plan to cut employment (and wages). We expect China's labour market to weaken but only modestly next year, supporting a slower but resilient consumption growth. In particular:Chinese corporates are facing downward pressures, with expectations for external orders and profit margins all softened. While revenue and domestic order expectations remained largely stable at 77% and 74% respectively (vs 78% and 73%, respectively in the April 2019 survey), fewer respondents expected an increase in external orders (66% vs 75%). Successive tariff hikes from the US and low expectation of a major trade war de-escalation were likely the reason. Also, more respondents expected a lower profit margin than in the April 2019 survey (29% vs 23% previously), and the key factors cited were higher competition and labour costs. In contrast, more respondents cited higher demand and lower tax as a positive for margins, and fewer cited higher interest payment as a negative factor (29% vs 42%). More respondents cited trade friction as top external risks, damaging to export business and corporate decisions (see Trade War: Who Shoulders the Cost & How Do They Cope?). We expect corporate revenue and profits to decelerate in the coming year.Credit access seems to have been further eased, but more respondents expected higher credit costs. More respondents than in April reported eased credit access (58%), but fewer respondents saw lower credit cost (21%) in H119, with the rising cost of shadow credit mainly to blame. Looking forward, more respondents than before (35% vs 31 % previously) saw tightening of credit access unlikely, especially for bank loans. However, more respondents (60%) expected a higher credit cost, higher than the 54% in the April 2019 survey. In particular, fewer respondents expected a higher cost for bank loans but more for corporate bonds and shadow credit. In addition, credit demand in some cyclical sectors (eg, property, materials, energy) softened but in healthcare and telecom sectors increased. For Q4 and 2020, we expect China's overall credit growth to rebound modestly to 11.2%, although shadow credit may face continued albeit smaller pressure of unwinding. Moreover, average credit cost may fall a bit with the help of additional RRR cuts and the expected reduction of MLF and LPR rates.Overall capex intentions increased but may face more headwinds from trade war uncertainties. Surprisingly, despite weaker profit expectations, more respondents planned to increase capex in the coming year than in April and last August (70% versus 64% and 61%, respectivel